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Apr 1, 1995 12:00 AM
In many closely held printing companies, the board of directors includes family members, advisors such as CPAs or attorneys, key employees or any combination of these individuals. Some board members simply may fill slots on a piece of paper, but others actually may participate in meetings.
For many firms, boards provide little guidance, advice, insight or candor. Why don't most traditional boards offer value for owners of closely held corporations? Is something wrong with these boards?
The answer depends on the goal. If a board's objective is to meet the legal requirement of a board with a minimum number of members, then selecting people with some involvement or relationship with the business is acceptable. If the purpose is to assist presidents with management issues and strategic direction, traditional boards typically fall short.
Having family members, professionals or key employees on the board often indicates role confusion. In family businesses, members should discuss family issues as they relate to the firm by holding family meetings rather than board of directors meetings.
This method also is true for key employees. Meetings should take place because managerial and operational issues must be resolved, but they are best handled through managers' meetings.
What about company advisors such as CPAs or attorneys? Since they provide advice to the business, aren't they satisfactory board members? The problem lies in their relationship with the company.
Since these advisors are paid to provide specific professional services to the corporation, they are in a position similar to employees. Like employees, advisors must consider how candor could affect their ongoing relationship with the business.
Outside members are the major component of professional boards. In public companies, the primary focus of outside board members is to protect shareholders' interests. In closely held firms, the goal is to provide owners/presidents with advice, guidance and accountability.
Professional boards can help both owners and companies in the following areas:
* Provide objective input to management about corporate direction and goals.
* Evaluate management performance, especially concerning sales and profits.
* Offer an outside perspective on the economy, industry and company-specific issues.
* Encourage presidents to focus on objective results from management and employees, especially when these workers are family members.
* Provide input and guidance on compensation issues for owners, management and non-salaried personnel.
* Focus on developing and implementing the company's succession plan, including ownership transfer and management succession.
Many owners shudder at the idea of independent outsiders on their boards because they view these outsiders as critics and Monday morning quarterbacks. Outsiders not understanding all the corporation's nuances and intricacies is another common objection.
Confidentiality is a third concern. Having outsiders on the board means sharing information with them, including financial data.
Trust is crucial, and thus it is imperative to select the right individuals to create the right board. Professional boards include a mix of insiders and outsiders, so selecting quality outsiders is a key concern. The best candidates often are owners of other closely held companies and not necessarily those in the same line of business. Attorneys, accountants and other service professionals also can be good candidates, provided they are not otherwise employed by the firm.
The number of board members depends largely on company size. Typically, boards have five to nine members.
Meetings should be held at least twice a year, preferably quarterly, and last between a half day and a full day. Meeting formats and content will vary, however agendas always are necessary. All meetings include financial reviews and address current issues.
Longer-term issues such as strategic direction, personnel needs, equipment expenditures, competitive position, opportunities and threats, financial and capital requirements and succession planning can be addressed during successive meetings.
Directors should be paid. How much to pay relates to company size, meeting length and frequency, and the type of people selected for the board. Pay for a single meeting ranges from approximately $200 to $1,500.
It is generally advisable for board members to have a fixed term, ranging from one to five years. A three-year term is most common.
Most likely, you will have to persuade candidates to sit on your board. A good strategy is to emphasize the position's prestige, and explain how the candidate's experience and judgment are valued.
Professional boards provide advice, guidance, insight and a degree of personal accountability to owners that otherwise may not be realized. Building one has a cost, both in terms of time and money; however, a properly structured board can provide value well beyond its cost.
DONALD F. SHELLY JR. is Denver-based management consultant specializing in business continuation planning, mergers and acquisitions, employee ownership and valuation